EXCLUSIVE: C-III Capital's Robert Lieber On NAI Global Acquisition and Growth Plans

C-III Executive Managing Director Robert Lieber spoke with CoStar News on the NAI acquisition and how it plays in the company’s broader growth strategy.

Real estate investment firm C-III Capital Partners LLC last week completed its acquisition of Princeton, NJ-based NAI Global. The long-awaited closing came seven months after the transaction was announced in June, leading some to wonder if the deal had fallen by the wayside. But C-III was hardly idle during that time, acquiring three other companies and making a major play for cash-strapped CRE services firm Grubb & Ellis Co.

As reported by CoStar last week, the transaction pairs NAI Global’s network of commercial real estate firms totaling 5,000 professionals and 350 offices in the U.S. and 55 countries around the world with an even broader range of financial and property management services offered by C-III, including loan origination and servicing.

C-III Capital has been on an acquisition spree since announcing the NAI transaction in June. The firm acquired the special servicing and CDO management businesses of JER Partners in August, and then turned around and bought two affiliated apartment property management businesses in the populous Texas and Southern California markets in November.

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Also late last year, C-III joined fellow investor Colony Capital in negotiations with Santa Ana, CA-based Grubb & Ellis. However, those talks expired on Jan. 15 without a deal, and 10 days later C-III closed on its purchase of NAI Global, which will be convening its annual conference next week in Las Vegas.

In the first full interview granted to an industry news outlet since the NAI Global acquisition, C-III Executive Managing Director Robert Lieber spoke with CoStar News on the NAI acquisition and how it plays in the company’s broader growth strategy.

Lieber, who left his position as deputy mayor and economic development czar under New York City Mayor Michael Bloomberg in 2010 to join Insignia Financial Group founder Andrew L. Farkas in the new C-III venture, has a unique vantage point. As an investment banker for Lehman Brothers in 1991, Lieber met with Farkas in a New York conference room to line up financing for launching Insignia Financial. Farkas went on to build the firm through a series of rapid acquisitions into one of the world’s largest CRE services companies before selling the company in phases over three years for $1.4 billion, with the largest and final piece sold to CBRE in 2003.

CoStar: How does the NAI acquisition fit into your firm’s strategy of building a fully diversified commercial real estate services company?

Robert Lieber: NAI fits very nicely into our strategy, which is building a global, diverse real estate services platform at C-III Capital Partners. It’s a strategy not entirely different or distinct from what Andrew Farkas did in the 1990s when he created and built Insignia Financial Group. We think that the NAI portfolio of members provides us a unique opportunity to service the broader middle market, not just in the country, but globally. It’s an exciting opportunity.

C-III has a portfolio of properties that we are responsible for managing. While NAI Global is going to have to compete for that business on market terms like anyone else, we think that having NAI Global and our platform behind them gives the ability to grow the business and distinguish themselves in terms of the quality of the services they provide.

CoStar: Are you planning to make more acquisitions? What opportunities do you see?

Bob Lieber: There are lots of opportunities to continue the growth curve we’re on, whether it be buying other special servicers or buying other property managers or service providers in the real estate business. It’s all very complimentary with what we’re trying to do as we build out our platform. We’re in a growth and acquisition mode. There are many parts to the business that we are considering.

CoStar: C-III Capital Partners’ strategy appears to be to link real estate financial services with property transaction and property management services more closely than ever, judging from the previous acquisitions of Centerline Capital and subsequent expansions into mortgage origination, investment sales and title insurance, and the special servicing and CDO management business of JER Partners. Is that an accurate assessment?

Bob Lieber: We are not linking financial services to property services. What we’re doing is building out a full tool bag of real estate service functions that we can provide for owners and managers of properties. Whether it is industrial, multifamily, office or hospitality, you need people who can run the day-to-day parts of the business at the property management and asset management levels. You’re also going to need different kinds of service providers on the transaction side that can provide financing, and arrange and execute sale opportunities. It’s more about trying to build out the services side to a real estate platform.

Our long-term plan is to make C-III a business that provides services for owners in the broader real estate market.

CoStar: Your association with Andrew Farkas goes back to the early1990s. Is it safe to say you weren’t entirely convinced at first that it was a great strategy to buy troubled businesses and build them into what became Insignia Financial, obviously one of the most successful companies in commercial real estate?

Bob Lieber: The magic of Andrew Farkas is his visionary perspective. When someone comes to you and says, "I’m going to become the toxic waste processor of the distressed limited partnership industry and amass a sizeable portfolio of assets under management," the first thing you say is, "That’s interesting." And then you ask, "Has anyone ever done that before?" When no one else has done it before, you say, "Well how are you going to do that?"

I’ll never forget the first day he came in and we were sitting in that conference room on the 16th floor in 1991. I knew something about the limited partnership business, and as I listened to him, I thought, "How does that work? He’s passionate about it and it seems like he’s thought it all through, I wonder if this is really going to work or not?" It worked in spades.

And that’s what Andrew did when he was out buying general partner interests in busted, troubled, failed limited partnerships. Andrew had a unique perspective and saw that the ability to try and aggregate and control this platform, which gave unique advantages to the limited partners in terms of their resolution alternatives, and opportunities for the general partners and the entity that was acquiring them -- a win-win situation.

CoStar: How is C-III’s strategy of integrating CRE financing sources with property transaction services similar, and how is it different, to the template Mr. Farkas used to build Insignia? How has the CRE business changed since then, and how does your current approach reflect those changes?

Bob Lieber: It’s important to note that the CRE services businesses that we have and want to grow are businesses that already have a significant third-party component to them. The third-party business is going to be a significant part of what we do. Our goal is to find businesses that are already established, have a footprint and a reputation in the market. With our capital, contacts and relationships, and commitment to bringing more money to grow the businesses, we can expand them in ways they may not have been able to before. That’s what we did with Insignia, and there were numerous transactions during that time, including buying Edward S. Gordon Co. in New York, the preeminent third-party real estate services firm in New York City, which we turned into a huge contributor to what is now CBRE.

CoStar: It seems there were a lot more mid-size and smaller players in the days before the huge industry consolidations that started with Insignia and CBRE. Does having a handful of large players change how you’re going to emulate the Insignia model?

Bob Lieber: I don’t know that it changes things. There are different components and aspects of the business we’re pursuing today. This isn’t as much of a bulk business as it may have been 15 or 20 years ago. You’re correct; the industry has consolidated quite a bit. What Andrew Farkas did with Insignia is not dissimilar to what we’ve seen in a number of other industries, including the banking and financial industries, as companies look for economies of scale and being able to more effectively deliver a critical mass of business.

We're looking for businesses that are complimentary to what we believe the gaps in the market are. Of course, you never say never, but do we want to build a big business or buy a big business to compete with the big boys in New York City? Well, maybe. And we also think there can be a lot of transactions done in the markets outside of those two or three major gateway cities.

CoStar: Is your strategy similar to that pursued by CBRE and its recent acquisition of the ING Real Estate Investment Management business? How is it different?

Bob Lieber: I can’t comment on the CBRE and ING transaction, other than to say this is an industry that is becoming more global. There’s always room for a niche player. But we think being able to bring a bigger tool bag with solutions for customers and clients is an important part of it as well.

CoStar: Other than recapitalizing the NAI Global network, what other changes do you have planned for NAI Global? Expanding into more markets? New hires? New service lines?

Bob Lieber: We’re going to capitalize on the strengths of the NAI businesses and identify where we can add additional resources to grow that part of the business. NAI has a global footprint. We’ll want to look at where it makes sense to grow the business internationally as well as concentrate on growth here domestically. With relationships and capital, we think there are pretty exciting ways to grow.

CoStar: Other firms such as Colliers International have moved away from the network model in recent years. Do you see the network model continuing to work as part of an integrated services provider?

Bob Lieber: We do believe the network model works and we’re excited about the prospects of the model we have. We may diversify a little bit too, but we like what we see.

I can’t comment on what Colliers is doing or what their intentions are. The market is global and having connections and reaching across markets is important because occupiers have particular needs in acquisitions, leasing, property sales or other businesses. For example, building out the national accounts desk and the ability to make the call to the key decision maker at large occupiers is important.

CoStar: C-III was also involved in well-publicized discussions to invest in and possibly acquire another brokerage firm, Grubb & Ellis. Why did you ultimately acquire NAI and not Grubb?

Bob Lieber: These opportunities are not mutually exclusive. NAI and Grubb & Ellis have complementary businesses. In any one of these transactions, ultimately, it’s the deal - how do you make the deal, what are the terms. We continue to look at potential acquisitions.

CoStar: Would you have considered making both deals?

Bob Lieber: Yes. It was not one to the exclusion of the other at all.

CoStar: How would you respond to a few industry observers who say having some of these businesses such as loan servicing and brokerage under one roof could be a potential conflict of interest?

Bob Lieber: It’s easy to make broad statements and generalizations. The operative contracts often contemplated that the affiliates may provide services to the trust, and these contracts specify what the terms of those services may be. It is about the execution and we believe transparency is important here. The trust benefits when the best qualified people are available to do the work.

The economic terms of any contract have to be done on market terms. We believe that our ownership and oversight of the direct provision of these services enhances the outcome to the trusts.